Friday, October 18, 2013

ACA exchange subsidies: are they sustainable?

As the health care exchanges go online, two major factors
work together to keep premium prices down. First, the individual mandate to
purchase insurance forces healthy people into the risk pool and keeps rates
reasonable (often reducing a $1,500 monthly premium to $300 in many cases). However,
even these drastic rate reductions are difficult for many working class and
working poor Americans to afford. So we bring in factor II: subsidies that
limit premiums and out-of-pocket expenses from a basic silver-level plan to a portion
of income for people with incomes between 100 and 400 percent of the poverty
level.In my case, subsidies will reduce
my premium by about $140-$185 a month depending on where my final income shakes out.

As a result of the individual mandate and subsidies millions
of people who couldn’t afford insurance are going online to the insurance
exchanges and making the exciting discovery that they can afford real coverage
for the first time.

And there was much rejoicing.

But that’s just the opening chapter.The next part of the story details what
happens to the subsidy levels in the future. Follow me below the jump for potential future problems in the subsidies and the gamble the ACA takes.

We go to the Congressional Budget Office, everyone’s
favorite arbitrator of how much public policy costs (unless your favored policies
cost too much).

According to the CBO, between this 2014 and 2019, the premium subsidies increase
by the rate of the Consumer Price Index (a standard measure of inflation) plus
the difference between the CPI and the inflation rate of the health care
sector. In English, that means the
subsidies will generally keep up with the increasing cost of health care.

After 2019, however, subsidies are set to only increase
annually by the levels of CPI. This keeps the overall cost of the ACA down, but
it has the potential to leave consumers in the lurch over the long term.

The ACA’s premium structure is similar to the Ryan plans in
one important sense, but it departs drastically from it in other very important
ways.

The similarity is that the vouchers under Ryan’s plan and under
the ACA may lose value against the cost of health care and offload costs on
consumers. There, the similarities end.

The differences are legion. Under the ACA, subsidies (even
ones that erode a bit) are an upgrade from the situation in which most of the
people who will be using them lacked meaningful access to insurance before the ACA. Ryan took
people who would otherwise be getting guaranteed coverage under Medicare and
pushed them off into vouchers, degrading their coverage.Second, the ACA moves people into tightly
managed insurance exchanges to guarantee that they can get access to reasonably
comprehensive health insurance, whereas early versions of the Ryan plan
repealed most of those protections and tossed people out on the open market
with a voucher.

And finally, the ACA actually implements dozens of projects and policies designed to lower the long-term growth of health care costs through
reforming delivery systems, (e.g. stopping doctors from doing stuff like this) instead of merely shifting those costs onto
consumers, which the Ryan plan sought to do.

That’s the several-trillion dollar gamble that Obamacare
makes: Can we lower the growth rate of the cost of health care enough to make
CPI-based increases in subsidies viable? That’s a challenge we’d have to face
without health reform as well, and I think the implementation of the ACA has
strengthened our hand considerably.

Postscript: Incidentally, for a bang-up summary about the
subsidies (or absolutely anything else you ever wanted to know about the ACA),
check out John McDonough’s outstanding book, Inside National Health Reform. McDonough is a former state legislator in Massachusetts, has a PhD in
public health from Michigan and was Sen. Edward Kennedy’s adviser to the Senate HELP Committee during the health
reform battle. His book spends a detailed chapter describing each title of the law, as
well as an insider’s account of the intrigue and policy deal-making that
surrounded the law’s passage.